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Over 20 stocks saw FY22E earnings upgrades in 3 out of past 4 quarters; worth a look?

Among stocks, which saw consistent upward FY22 earnings revision (three out of the past four quarters) were Dr. Reddy’s, Aurobindo Pharma, Cipla, Tata Motors, and TATA Steel, Elara Capital highlighted in the report.

November 26, 2020 / 02:34 PM IST

The September quarter earnings were better than expected as earnings upgrades exceeded the downgrades. As many as 32 Nifty stocks saw an earnings beat (actual results exceeded estimates by >5%) while only seven saw an earnings miss.

The beat ratio (net earnings surprise divided by a total number of stocks) improved to 50% QoQ due to an earnings beat in financials, energy, and healthcare, Elara Capital said in a report.

Margin also expanded on the back of lower raw material cost, and overhead expenses.

The domestic brokerage firm raised the Nifty 50 EPS to INR 470, up 6%, for FY21E and to INR 640 for FY22E, down 2%, from Q1FY21.

“Currently, we expect flat EPS growth in FY21E and 36% EPS growth in FY22E, hinging on EPS expansion in consumer discretionary, financials and energy sectors,” it said.

Close

Tracking the recovery in the economy, the domestic brokerage firm raised the Nifty 50 EPS to Rs 470, up 6%, for FY21E, and for FY22E to Rs 640, down 2%, from the last quarter, as things stabilize and the economy begins to recover.

FY22E net earnings ratio for BSE100 fell to 28 percent QoQ from 89% in the past quarter, led by net upgrade in financials, consumer discretionary and materials.

Among stocks, which saw consistent upward FY22 earnings revision (three out of the past four quarters) were Dr. Reddy’s, Aurobindo Pharma, Cipla, Tata Motors, and TATA Steel, Elara Capital highlighted in the report.

Earnings upgrades 23 November

Most of the companies have delivered powerful results, and if someone is holding them in the portfolio, then they should hold on to them. For fresh investment, investors can wait for a dip for long term investment, suggest experts.

“These companies can be considered as long-term buys as their fundamental aspects look strong. Consistent growth in EPS over the past few quarters is one of the major reasons that these stocks have been able to attract investors over time,” Gaurav Garg, Head of Research, CapitalVia Global Research Limited told Moneycontrol.

“Also, the prospects of most of the firms look promising. Therefore, most of the stocks can be considered for long term holding. However, investors should perform a detailed analysis of each stock in order to make an informed decision,” he said.

What should investors do?

Corporate earnings in Q2FY21 came in better-than-estimates supported by low raw material cost and realised operating leverage benefits along with strong management commentary for the forthcoming quarters amid the COVID-19 outbreak.

ICICIDirect expects the Nifty earnings to grow at 17.5% CAGR in FY20-23E. From the low base of FY21E, Nifty earnings CAGR is at 22.7% in FY21E-23E. We now value the Nifty at 13,350 i.e. 20x P/E on FY22E-23E average EPS of 668.

With earnings on the rise, markets are unlikely to disappoint, suggest experts. Earnings is definitely one parameter which one should track, apart from that, investors should also at the balance sheet, financial ratios, product life cycle etc.

Apart from the bottom line, one should track a company’s performance is to look at its financial ratios, most of which are freely available on the internet, it is a good method to run a fast check on a company’s health before buying or selling the stock, added Jitendra Upadhyay- Senior Equity Research Analyst told Moneycontrol.

“The companies listed above can be considered as long-term buys as their fundamental aspects look strong. Consistent growth in EPS over the past few quarters is one of the major reasons that these stocks have been able to attract investors over time,” he said.

Upadhyay, the prospects of most of the firms look promising. Therefore, most of the stocks can be considered for long term holding. However, investors should perform a detailed analysis of each stock in order to make an informed decision.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Nov 26, 2020 02:34 pm

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